Weaker cocoa processing weighs on prices

The cocoa market is currently in a clear correction phase following the strong price rally in March, during which prices rose by double digits. Both London and New York futures have since fallen back, with London trading around £2,395 per tonne ($3,158 per tonne) and New York around $3,158 per tonne. The market is struggling to hold the £2,500 ($3,290) level, indicating technical resistance and a cooling of earlier upward momentum. The main explanation for this weaker price trend lies on the demand side. Market participants are increasingly concerned about first-quarter processing figures, which will be published later this month. Cocoa processing in Europe is expected to decline by around 2% to 4%, while a contraction of 10% to 12% is anticipated in North America. A decrease is also expected in Asia. This development suggests that the exceptionally high prices of recent months are beginning to feed through into demand. Processors and consumers are becoming more cautious. The market is therefore shifting from one driven by supply concerns to one where weak demand is becoming more central. On the supply side, the picture is less clear-cut. In Ivory Coast, the world’s largest producer, there has been little rainfall recently in key growing regions. Farmers report declining soil moisture and indicate that additional rainfall is needed to support the development of the mid-crop, which runs from March to August. Without sufficient rain, yields in the coming months may come under pressure. At the same time, the harvest is expected to increase seasonally from May, which may temporarily boost supply. The market therefore remains highly dependent on weather developments in West Africa, where small changes in rainfall can quickly impact sentiment. Recent price movements also indicate that part of the earlier rally was driven by financial factors, such as funds covering short positions. Now that this effect has faded, the market is returning to underlying fundamentals. Data, and in particular the upcoming processing figures, are therefore playing an increasingly important role in price formation. In the short term, the market appears vulnerable to further downward pressure as long as demand remains weak and no new supply disruptions emerge. At the same time, the risk of price recovery remains, especially if weather conditions in West Africa deteriorate and production expectations are revised downwards. The publication of grinding figures on 16 April will be a key reference point, as these provide insight into the extent to which high prices are affecting physical demand.